Part B Boromir Ltd owns 100% of Samwise Ltd, which in turn owns 100% of Saruman Ltd. During the financial reporting period, Boromir Ltd sells inventory to Samwise Ltd at a sales price of $350,000, which cost Boromir Ltd $200,000 to produce. Samwise Ltd subsequently sells the same inventory to Saruman Ltd for $400,000 without incurring any additional costs. By the end of the financial reporting period, Saruman Ltd has sold half of this inventory to companies outside the group for $450,000, and kept the remining half of the inventory on hand.
Part B Boromir Ltd owns 100% of Samwise Ltd, which in turn owns 100% of Saruman Ltd. During the financial reporting period, Boromir Ltd sells inventory to Samwise Ltd at a sales price of $350,000, which cost Boromir Ltd $200,000 to produce. Samwise Ltd subsequently sells the same inventory to Saruman Ltd for $400,000 without incurring any additional costs. By the end of the financial reporting period, Saruman Ltd has sold half of this inventory to companies outside the group for $450,000, and kept the remining half of the inventory on hand.
Chapter10: Cost Recovery On Property: Depreciation, Depletion, And Amortization
Section: Chapter Questions
Problem 62P
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Part B
Boromir Ltd owns 100% of Samwise Ltd, which in turn owns 100% of Saruman Ltd.
During the financial reporting period, Boromir Ltd sells inventory to Samwise Ltd at a sales price of $350,000, which cost Boromir Ltd $200,000 to produce. Samwise Ltd subsequently sells the same inventory to Saruman Ltd for $400,000 without incurring any additional costs.
By the end of the financial reporting period, Saruman Ltd has sold half of this inventory to companies outside the group for $450,000, and kept the remining half of the inventory on hand.
Required:
- a) From the economic entity’s perspective (ie. the group’s perspective), determine the sales revenue for the financial reporting period, and explain your answer.
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- b) From the economic entity’s perspective (ie. the group’s perspective), determine the value of closing inventory for the financial reporting period, and explain your answer.
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